Wible's Weekly - Second Screens, SuperTickets, Facebook and Broadband Dynamics - Janney/MediaEntertainment

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Second Screens – Second screens are transforming how consumers view TV, according to research by Nielsen. Smart devices are used as second screens while watching TV every day by 46% of smartphone users and 43% of tablet owners. Tablet owners still use the device primarily for web searches (76%) and browsing (68%), but increasingly the content browsed/searched for is more related to what they are watching. More than half of device owners visited a social networking site while watching TV and more than 20% spent time on social media discussions related to the programming being watched. Nielsen also found 20% of tablet owners used their device to shop for items advertised on TV, which supports our thesis that we will see more integration with second screen apps and a flow of ad dollars to second screens. We believe VIA is ideally position for this trend.

Social Advertising – FB announced its Instagram service will support (up to) 15-second videos for its 130 million users to share. In addition to directly competing with Twitter's Vine service (which allows 6-second clips), this also opens the door to more video advertising. Big brands, such as NKE, KORS, and GE are already using video on Instagram, although pure advertising has not yet been introduced. FB is likely to also add video ads that play automatically in newsfeeds, although this is reportedly delayed until the fall. FB continues to experiment with ad formats and recently consolidated its products, which generate a wide range of CPC, CTR and CPM outcomes. In a study by SalesforceSocial.com, context-based ads (such as Sponsored Place Check-In Story), while more expensive, got significantly enhanced CTR performance.

SuperTicket – Cineplex, a Canadian theater operator, announced the launch of SuperTicket, which allows movie-goers to purchase a movie admission ticket and pre-order the UltraViolet download of the movie at the same time. This could be a big idea for both theaters and studios, as it can provide a new source of (potentially high margin) revenue for theaters, while help slowing DVD pressure at studios. Research by Cineplex showed that 55% of Canadians 18-34 typically purchase movies they enjoyed in theaters. Research by Hotspex found that 74% of movie lovers found the SuperTicket concept appealing. We believe this concept should be explored in the US as well and would greatly speed up UV adoption; however, we are not optimistic this will happen anytime soon.

Piracy – Torrentfreak reported statistics around piracy, helping to quantify potential impact on studios and networks. The most pirated TV this spring was HBO's Game of Thrones, which got 5.2 million illegal downloads. This number was up 25% YoY in line with the regular ratings increase. The next most pirated show was The Big Bang Theory with 2.9 million downloads. The total number of downloads for Torrentfreak's top 10 list was approximately 23 million and excludes online streaming and cyberlocker downloads. If we use an average $2-$3 per download, this implies at least $46-$69 million in lost revenues.

Broadband – Companies that rely on fast internet speeds for their (consumer) offerings are increasingly at risk of having to pay the broadband access providers in order for their traffic to smoothly traverse access networks according to a WSJ article. NFLX in particular has been trying to build its CDN (called OpenConnect) to directly connect into broadband networks to improve the quality of its streaming, although many other large web companies (GOOG, MSFT, FB) pay for faster, smoother connections. While strictly not in violation of net neutrality rules, the practice could invite increased regulatory scrutiny. As video traffic doubles through 2017 (according to CSCO) and new offerings, including INTC's IPTV service enter the marketplace, we believe broadband access providers will use direct payments as well as new business models to participate in the economics.

Tony Wible joined Janney Montgomery Scott in 2008 and is a Managing Director covering the Media and Entertainment sector after spending the previous 10 years at Citigroup InvestmentTony WibleResearch—most recently covering the Broadcasting and Entertainment Services industries.
Tony can be reached at twible@janney.com.

Janney Montgomery Scott LLC, is a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the New York Stock Exchange, the Financial Industry Regulatory Authority and the Securities Investor Protection Corp. Disclosures may be reviewed at Wible's Weekly.

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